The effect of monetary policy on the formation of stock market bubbles
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2018-12-11
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en
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This paper aims to investigate the effect monetary policy has on the formation of stock market price bubbles. It investigates the European stock markets and the impact of European Central Bank-policies. Prior research shows that monetary policy can lead to the formation of stock price bubbles. To identify the effect of monetary policy on the formation of stock price bubbles, a logistic regression model has been established. The analysis will provide insights in the effect of monetary policy conducted by the ECB on the stock markets in Eurozone countries. The difference in effect of the unified ECB-policy on individual Eurozone countries is investigated. The analysis is performed using data for relevant European countries and the Eurozone from the date on which the European monetary union was formed. This means that the dataset incorporates the effect of unified ECB-policies on the formation of stock market price bubble from the moment the ECB became the policy maker for the Eurozone. The results of the model show that monetary policy effects the formation of both positive and negative stock price bubbles. Furthermore, various domestic stock markets experience different effects compared to the Eurozone stock market, regarding the formation of stock market price bubbles.
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Faculteit der Managementwetenschappen